RBI may be allowed to supersede boards of banks

In a move that is likely to enable the RBI grant new banking lecences to private entities, the finance ministry has decided to grant the RBI additional power to supersede bank boards in certain cases without amending banking laws, Mahua Venkatesh reports.

In a move that is likely to enable the Reserve Bank of India (RBI) grant new banking lecences to private entities, the finance ministry has decided to grant the RBI additional power to supersede bank boards in certain cases without amending banking laws.

Earlier, the RBI said that it would issue new licenses only after Parliament approved the Banking Laws Amendment Bill, providing it with larger regulatory powers over banks.

“However, we are looking at ways to address the concerns of the regulator and also provide a clause without amendment of the law under which the RBI would be allowed to supercede a bank board to speed up the process of allowing new private sector entities to set up banks,” a senior finance ministry official said on the condition of anonymity.

Several business houses including Adiyta Birla Group, the Tatas and Reliance, have shown interest in entering the banking sector. The entry of new faces is likely to change the contours of the industry and induce more competition in the sector.

According to the draft guidelines on new banking licenses put up by the RBI, all new banks would have to open at least 25% of their branches in unbanked rural areas.